Color of Money: Check your paycheck, you might be getting too much money

Tax reform could bring headaches for some.

Written by Michelle Singletary

With the new tax law comes a home assignment.

Remember that small form you filled when you got your current job? It's IRS Form W-4. This is the form that your employer uses to withhold federal income tax from your pay.

As a wage earner, you are required to pay federal income tax by having it withheld from your paycheck throughout the year. This is your withholding, which you calculate based on the number of allowances you claim on your W-4. If your tax situation changes, you should fill out a new form, because it could impact your tax situation. The goal is to have your withholding match your actual tax liability.

Well, with a new tax law in the land, you might need to do some calculations to see if you're withholdings are correct. I know. You're preoccupied with gathering the documents for your 2017 tax return. But this is exactly the right time to also focus on your 2018 return. To get the withholding right, you'll need information from your current pay stub and your 2017 tax return.

TODAY'S SPONSOR:

In an ideal world, you don't want to owe the federal government taxes, but neither should you aim to get a large refund. To hit the sweet spot, no taxes owed and maybe a small refund, you need to focus on your W-4. Otherwise, with the new tax changes hitting this year, you may find your employer is withholding too much money or not enough. In the latter case, do you really want to find out when you file your 2018 return next year that you've got a big tax bill?

"We suggest that people look at their withholdings every year, but most don't," said IRS spokesman Eric Smith. "But if ever there was a year to look at your withholdings, this is the year. Your current return is a roadmap of your tax situation."

Under the Tax Cuts and Jobs Act, there are now seven new income tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. Standard deductions have increased. For individuals and married couples filing separately, deductions increased from $6,350 to $12,000. The deductions for heads of household went from $9,350 to $18,000, and for married couples filing jointly, it went from $12,700 to $24,000.

"It's important to adjust your W-4 for any over- or under-withholding to get closer to the break-even point," said Eric Bronnenkant, head of taxes for the online financial adviser Betterment.